Features | Concepts | 4 Mins Read | by
Professionals like to become known for a new term, concept or acronym. I am no exception. My big idea is the concept of stock compounders. It is used to describe the companies that drive the market forward.
I recently gave a webinar for the CFA Society of the UK with the subject: Stock Compounders drive markets. The term “stock compounders” describes durable businesses that offer an attractive combination of quality and growth.
The quality of a company alone says nothing about its ability to grow. A quality company without the ability to grow is similar to a high yield bond i.e. all the cash flow is paid out to investors.
Professor Bessiminder has highlighted that a few stocks drive the market - Do Stocks Outperform Treasury Bills? One in 281 stocks generated the majority of the US equity market’s outperformance from 1916 to 2016.